Managerial power describes a corporate governance structure in which executives hold sway over a capitulating board of directors, usurping its decision-making power for their own benefit. Many executive pay critics now cast managerial power as the dominant force in determining executive pay. Those who argue that the pay-for-performance model is broken or nonexistent frequently turn to the concept of managerial power as the cause of the breakdown and the best explanation for the excessive levels of executive compensation that they believe must be corrected.

The corporate scandals of recent years fueled the mythology of corrupt CEOs and passive boards, with shareholders and employees left powerless in the face of widespread abuse. These scandals are terrible for the surviving corporations, the economy, and the morale of the investing public. But there is no evidence that they are the tip of an iceberg of out-of-control CEOs setting their own pay. A number of factors, mostly economic, influence the CEO pay market; managerial power is only one of them. In rare cases, it is the most important.

The most persuasive argument for the myth appears in Lucien Bebchuk and Jesse Fried's Pay without Performance: The Unfulfilled Promise of Executive Compensation, published in 2004.